Ontario ONTARIO ENERGY BOARD ANNUAL REPORT 1996-1997 \/ / / I \ \ \ \ Table of Contents Message from the Chair 2 Board Members 5 OEB Mandate, Roles and Resources 7 An Evolving Energy Marketplace 12 Streamlining Regulation and Operations 16 1996-97 Regulatory Agenda 21 Ontario Hydro Hearing 21 Natural Gas Rates Hearings 22 Other Proceedings 27 Other Regulatory Matters 29 Pipeline Applications 31 List of Proceedings 34 List of Participants 39 Glossary of Terms 41 \ ISSN 0317-4891 Ministry of Energy, Science and Technology Office of the Minister Hearst Block 900 Bay Street Toronto ON M7A 2E1 Tel. (416)327-6715 Fax (416) 327-6754 Ministere de I'Energie, des Sciences et de la Technologie Bureau du ministre Edifice Hearst 900, rue Bay Toronto ON M7A 2E1 Telephone (416) 327-6715 Telecopies (416) 327-6754 Ontario The Honourable Hilary M. Weston Lieutenant Governor of the Province of Ontario I hereby submit the annual report of the Ontario Energy Board. It reviews the events and activities of the fiscal year ending March 31 , 1997. Respectfully submitted, Jim Wilson Minister of Energy, Science and Technology ® 0761 G EST (10/97) 100% Recycled Chlorine Free. Made in Canada Message From The Chair OCJR CHALLENGE IS TO FACILITATE THE DEVELOPMENT OF A HEALTHY COMPETITIVE ENVIRONMENT WHILE BALANCING THIS WITH THE REQUIRE- MENT TO PROTECT THE PUBLIC INTEREST. ■NnBHMnHHBaMHiiHBnHHaaHBBBnBiHHBanHBB Regulator's role is to facilitate develop- ment of competitive MARKET As competition throughout the energy sector develops, the regulator is faced with the need for reform. Our challenge is to facilitate the develop- ment of a healthy competitive environment while balancing this with the requirement to protect the public interest. The need for economic regulation diminishes as an industry becomes more competitive. Since a well-functioning market should provide results that are efficient, equitable and sustainable, regula- tors should step aside and let the market prevail. Where such conditions exist, regulators should regulate only when necessary to prevent abuse arising from monopoly power or market imperfections. The Ontario Energy Board (OEB) has already begun to change its regulatory approach. Under the existing legislation, only local distribution companies (LDCs) are permitted to sell gas to end users in Ontario. In order to assist the development of a competitive natural gas market in the province, the Board has authorized purchasing mechanisms that allow gas users to purchase their gas supplies directly from producers or through an agent, broker or marketer and have them distributed by the LDC. This year, the Board accepted a new direct purchase option, Agency Billing and Collection (ABC) service, in which directly purchased gas supply charges appear on the customer's utility bill. The advent of this service marks a large step in the move towards a truly competitive market. Customers more clearly than ever are being invited to make choices and assume risks. These mechanisms have allowed direct purchase transactions to take place, but only as a second- best solution. Therefore, in late 1995, the Board initiated a Market Review to consider options for eliminating market barriers and inefficiencies and to explore the potential for further deregulation. The review began with industry workshops which formed the basis for a Board Report issued in September 1996. This Report, in turn, was provided to an industry working group in a process that continues at year end. In the transition from a monopoly environment for commodity sales, the regulator has an obligation to ensure that service quality does not suffer and that the benefits of competition accrue not only to commer- cial interests, but to all customers. A major issue facing the Board as the commodity market evolves relates to the customer protection aspects of deregulation. It is crucial that customers, especially the small-use customers, are properly informed of the new choices open to them and are aware of the potential benefits and risks associated with those choices. For instance, as a condition of approving ABC service, the Board required preparation of a customer information package to ensure that all ratepayers were informed of their purchasing options and the consequences. The maturity of the natural gas market is leading to changes in industry structure and engendering further regulatory issues. For example, two Ontario gas utilities have established their own marketing affiliates, to compete head on with brokers in the direct purchase market. Recognizing the potential for these affiliates to gain preferential access to monopoly services and customer information, the Board this year set in motion a process to establish rules governing the utilities' relationships with marketing affiliates and other marketers. At the same time, utilities are diversifying into business areas where their expertise conveys a competitive edge, such as construction of water pipelines and reading of water and electricity meters. Following a public forum on this issue, the Board issued a Report which advised the govern- ment that diversification into non-regulated business should not be prohibited, as long as ratepayers are protected against adverse consequences and recommended a number of regulatory controls to achieve this. In this fluid environment, the energy regulator may need to share oversight responsibility with other government agencies dealing with anti-competitive practices, such as the federal Competition Bureau and the provincial Ministry of Consumer and Commercial Relations. The Board has begun to liaise with these organizations to develop a mutual understanding of our respective roles in protecting consumer interests and maintaining a level playing field for all market participants. Competition has gained momentum in the natural gas industry, and a similar trend is rapidly emerging in Ontario's electricity sector. Given Ontario Hydro's reliance on export markets and customer demand for competitively priced electricity choices, most observers agree that the status quo is not an option. The Advisory Committee on Competition in Ontario's Electricity System in June 1996 recom- mended the introduction of competition in power generation, with open access to the provincial transmission grid. While awaiting the government's response to the Macdonald Committee report, the OEB has attempted to keep abreast of electricity restructuring developments to prepare for any regulatory roles the government may assign us in the electricity sector. The changing world of energy has led to changes in the way the Board does business. In the past, our role has been principally a reactive, quasi- judicial one of holding public hearings in response to applications. While this will continue to an extent, the Board will take on a stronger regulatory policy-making role to shape the ground rules for the operation of the new marketplace. Regulatory oversight in the future will require an enhanced level of compliance monitoring, auditing and enforcement to hold the regulated utility account- able for following the new rules and procedures, such as those governing affiliate transactions. In anticipation of these altered responsibilities, the Board this year planned and began implementing a major internal restructuring. Our new organizational structure will strengthen our research and policy development and auditing and monitoring capabilities. The Board is also taking action to modernize the hearing process. In February 1997, we issued our Rules of Practice and Procedure, updating and finalizing the previous draft rules. The new rules provide more detailed provisions for settlement conferences and other pre-hearing processes, and introduce procedures for electronic and written hearings. between the Board and key stakeholders on matters of process. At the same time, the Board is relying more on informal processes such as work- shops, consultatives and open forums to address key issues. This less adversarial approach enables the energy industry to develop its own answers while permitting the Board to take a less intrusive stance. The OEB and the National Energy Board are collab- orating on an Electronic Regulatory Filing project to build a system for accessing and sharing of regulatory information electronically among all regulatory participants. A cost-benefit analysis completed this year was encouraging, and indicated that electronic filing would represent a sound investment in streamlining the regulatory process. The Board continues to seek and experiment with creative alternatives to traditional forms of economic regulation in order to maximize regulatory flexibility. For example, this year we adopted a generic rate of return model setting a formula to be used in calculating the rate of return on common equity. In addition, legislation was pending in the Legislature at year end to give the Board the power to establish a more flexible approach to setting rates, clearing the way for performance or incentive-based as compared to cost-based regulation. In the past, regulators may have been reluctant to maintain close contact with the regulated industry. In the transition to a competitive market, however, regulatory efficiency can be enhanced through closer interaction with industry participants. This conclusion prompted the Board to create an External Advisory Committee, which has proven of value as a two-way communications vehicle In February 1997 the Government Task Force on Agencies, Boards and Commissions, chaired by MPP Bob Wood, submitted its Report on Restructuring Regulatory and Adjudicative Agencies. The Report recommended that the OEB continue in its present form, as a stand- alone agency. In addition to reviewing 79 government bodies, the Task Force made recommendations to streamline the administrative justice sector as a whole. I am pleased to serve on the government-wide Working Group which is assisting the Agency Reform Commission to co-ordinate agency reform pro- jects. OEB staff are also involved in the agency reform initiative. We at the Board look forward to continued co-operation with energy industry stakeholders to foster the evolution of competition and maximize the benefits for Ontario. It is our expectation that further gains can be achieved through increased deregulation, better consumer education and broader customer choice. Working together, I am confident we will find creative solutions to attain this vision. 1arie C. Rounding Chair Board Members (As of March 31, 1997) Chair: Marie C. Rounding, a lawyer and former teacher, has been Chair of the Ontario Energy Board since January 1992. She has held a number of senior positions with the Ontario Ministry of the Attorney General, with a focus on administrative and regulatory law. Immediately prior to joining the Board as Chair, she was Director of the Crown Law Office — Civil Law. Ms. Rounding is active in the administrative justice community, having com- pleted a term as Chair of the Canadian Association of Members of Public Utility Tribunals in 1996-97 and now serving as Past Chair. She is also a member of the Board of Directors of the Council of Canadian Administrative Tribunals and President of the Board of Governors of the Society of Ontario Adjudicators and Regulators. Vice-Chair: ^/ Appointed Vice-Chair in June 1993, George A. Dominy has extensive experience in the energy field in both the private and public sectors. Prior to joining the Board, he served as Director — Electricity, Oil and Gas Branch at the Ministry of Environment and Energy. Mr. Dominy holds a Masters degree in mathematics from Cambridge University. Members: Pamela W. Hardie, a lawyer formerly with the Ontario Securities Commission, joined the Board in July 1990. She has had experience with other boards and with the Office of the Ombudsman. Edward J. Robertson became a Board Member in May 1992. Before joining the Board, he was Chairman of the Manitoba Public Utilities Board. He has extensive private sector experience in the United Kingdom, including service from 1972 to 1977 as a Director of the Confederation of British Industries in London, England. He entered the Ontario Public Service in 1977. *a aul Vlahos was appointed to the Board in October 1994. He formerly held positions with Union Gas Limited and the Ontario Energy Board. Prior to becoming a Board Member, Mr. Vlahos served as General Manager — Ontario Telephone Service Commission. He holds a Masters degree in economics. y/ H. Gail Morrison, a lawyer, was appointed to the Board in March 1996. Ms. Morrison, who joined the Ontario Public Service in 1982, previously held various positions in the Office of the Ombudsman and was most recently Executive Co-ordinator with the Environmental Assessment Board. She holds Masters degrees in law and physics. \S Roger M.R. Higgin was appointed to the Board in September 1996. Prior to joining the Board, Dr. Higgin was General Manager and Chief Operating Officer of Unisearch Associates Inc. He has held a number of senior positions in the former Ministries of Environment and Energy, including Assistant Deputy Minister — Programs and Technology Division, and previously served as a member of the Ontario Energy Board from 1988 to 1991 . Dr. Higgin holds a doctorate in chemical engineering and a Master of Business Administration. We at the Board look forward to continued cooperation with energy industry Stakeholders to foster the evolution of competition and maximizing the benefits for Ontario. / /1 1 1 \\\ \ Judith B. Simon, an environmental scientist, was appointed a part-time Board Member in May 1992. She formerly held managerial positions with the Ministries of Industry, Trade and Technology and of the Environment, and was an energy planner with the Ministry of Energy. She is currently a consultant specializing in environmental assess- ment and strategic planning. Christine Elwell, a lawyer, joined the Board as a part-time Member in April 1995. She holds a Master of Laws degree from the London School of Economics and Political Science. Ms. Elwell has previously worked in the petrochemical and nuclear industries in both Alberta and Ontario, in labour relations and environmental policy, and is currently an Adjunct Professor of Law at Queen's University. F. Anne Drozd is a fellow of the Institute of Chartered Accountants of Ontario. She is President of ACHOS, a management consulting firm. Ms. Drozd has practiced as a Certified Management Consultant since 1982 and has extensive experience in the regulatory environ- ment. She was appointed a part-time Board Member in April 1993. \q Judith Allan served as a Board Member for a portion of the year. Previously with TransCanada PipeLines Limited, Ontario Hydro and the Ministry of Energy, she was appointed to the Board in September 1990 and completed her term in September 1996. OEB Mandate, Roles and Resources The Ontario Energy Board (OEB) is a regulatory agency of the Ontario Government, reporting to the Minister of Energy, Science and Technology*. As a quasi-judicial tribunal, the Board functions independently from the government. Board Responsibilities Most of the OEB's responsibilities are established in the Ontario Energy Board Act. In addition, several other statutes give jurisdiction to the Board, including the Municipal Franchises Act, the Petroleum Resources Act, the Public Utilities Act, the Assessment Act and the Toronto District Heating Corporation Act. and the revenue required by the utility to pay its expenses and make the allowed return. Finally, the Board decides how each customer class — residential, industrial and commercial — should contribute to meeting this revenue requirement The OEB's primary objective when setting rates is to ensure that the public interest is served and protected. The Board sets rates as low as possible while providing utility investors an opportunity to earn a fair return. If a utility's financial picture changes significantly between rates hearings, the Board may hold an interim hearing to grant relief to either the company or its customers. The OEB's primary OBJECTIVE WHEN SETTING RATES IS TO ENSURE THAT THE PUBLIC INTEREST IS SERVED AND PROTECTED. Approving Natural Gas Rates In Ontario, private gas utilities are required by legislation to submit their proposed rates to the OEB for review and approval. The Board establishes rates for each utility following a public hearing. Where users purchase gas directly from producers or marketers, the OEB controls the rates that utilities may charge for transporting, storing and distributing the gas in Ontario. The Board also establishes the price that the utility pays for gas purchased directly under buy-sell arrangements. In setting rates, the Board establishes the company's rate base, that is, the amount invested in assets dedicated to service. The Board also determines the rate of return that investors should have the opportunity to earn, Ontario's Gas Pipeline System LEGEND »••••• TransCanada PipeLines Union Gas — — *- Centra Gas ooooo Great Lakes raono Panhandle Eastern kmmm3 Empire State «**■■» Tennesse Gas am— mi Iroquois Reviewing Ontario Hydro Rates Ontario Hydro is required by law to submit any proposed change in its bulk power rates to the 'Provincial energy responsibilities were transferred from the Ministry of Environment and Energy to the new Ministry of Energy, Science and Technology in October 1997. ////WW Minister of Energy, Science and Technology, who then refers the proposal to the Board. Bulk power rates are the wholesale rates that Hydro charges municipal utilities and direct industrial customers. After a public hearing, the OEB submits its Report with recommendations to the Minister. The Board's role is an advisory one and its recommendations are not binding. Ontario Hydro's Board of Directors is responsible for the final approval of the utility's bulk power rates. References and Generic Hearings The Lieutenant Governor in Council (LGIC), the Minister of Energy, Science and Technology or the Minister of Natural Resources may refer a matter to the Board for a public hearing and report. The OEB's Reports are normally advisory in nature. The Board may also hold generic hearings on its own initiative on matters under its jurisdiction. Gas Transmission Pipeline Construction Utilities intending to construct a natural gas transmission line in Ontario must obtain Board approval. Such projects generally involve large-diameter, high-pressure pipelines with substantial capital costs and environmental implications. The Board assesses whether the proposed construction is in the public interest by considering need, safety, economic feasibility, community benefits, security of supply and environmental impact. The OEB's Environmental Guidelines set out the Board's expectations for locating, constructing, and operating pipelines in Ontario. Before a formal application is filed with the Board, a pipeline construction proposal is reviewed by the Ontario Pipeline Co-ordination Committee (OPCC). Chaired by an OEB staff member, the OPCC represents various provincial ministries who together consider the environmental and safety aspects of pipeline construction. Regional agencies also take part in the discussions as necessary. In conjunction with a pipeline approval, the OEB may also grant authority to expropriate land, and authorize pipeline crossings of highways, utility lines and ditches. Natural Gas Franchise Agreements Each municipality may grant a gas utility the right to provide gas service and use road allowances or utility easements within its borders. The specific terms and conditions of the franchise agreement must be approved by the Board. Natural Gas Franchise Areas QUEBEC □ CONSUMERS GAS UNION CENTRA UNITED STATES Certificates of Public Convenience and Necessity No person is allowed to construct any works to supply gas without Board approval. This approval, in the form of a certificate, is not given unless public convenience and necessity support the extension of service. Gas Storage Facilities Natural gas may not be injected into a geological formation in Ontario unless the land is designated as a storage area. The Board recommends to the LGIC areas that are suitable for designation. The Board may authorize the use of the storage area once the LGIC has approved designation. The OEB also determines the compensation payable to the owners of land where the storage pools are situated, if the parties cannot agree among themselves. In addition, applications for drilling permits for wells within designated gas storage areas are referred to the Board for a report to the Minister of Natural Resources. The OEB's recommendations in these cases are binding. Gas Utility Ownership Changes Under the Ontario Energy Board Act, a natural gas utility must obtain permission of the LGIC to sell its system or amalgamate with another company. LGIC approval is also necessary when any person wishes to acquire or hold more than 20 per cent of any class of shares. Applications for such changes in ownership of utilities must be made to the Board, for a hearing and report. Compliance with Undertakings In consideration for certain approvals obtained from the LGIC, the gas utilities have provided specific undertakings. The Board is responsible for administering many of these undertakings or commitments. This role involves monitoring compliance with the terms of undertakings, approving exemptions and reporting to the Minister of Energy, Science and Technology or the LGIC. OEB Regulatory Activities 1996-97 Days Case Type Applications Decisions Orders Hearing Workshop/ (General) Forum Franchise Approvals 64 17 45 5 - Certificates of Public Convenience & Necessity 21 10 10 19 - Pipeline Construction 5 3 3 26 Reference from Minister of Natural Resources 3 2 - 2 - Natural Gas Rates 7 2 5 81 - Hydro Bulk Power Rates 1 1 1 29 - Pipeline Exemptions 1 - 6 - - Uniform Accounting Orders 4 - 2 - - Undertakings 6 5 - - - Other 6 1 1 13 - Market Review - - - - 2 Diversification - 2 TOTALS 118 41 73 175 4 Note: The above statistics relate to cases/activities initiated this fiscal year or continued from prior years. Board Organization The OEB has seven full-time Members including the Chair and Vice-Chair, plus three part-time Members. It is a multi-disciplinary group comprised of economists, lawyers, accountants and business people familiar with the energy industry. Members are appointed by the LGIC for terms of up to three years, upon the recommendation of the Minister of Energy, Science and Technology after consultation with the OEB Chair. The Board normally sits in three-member panels to hear major cases, but two Members constitute a quorum. The OEB operated with an approved complement of 39 staff this year, in addition to the Board Members. During the year the Board had 13 Technical Staff, who served as case managers and analysts for OEB proceedings. They participated in hearings as a separate party, completing the public record and providing a preferred alternative on the issues. Three Board Advisors offered technical, financial and accounting support and advice to the Board Members. These advisors were not a party in the hearings and assisted the Board panel throughout the hearing and decision-making process. During the year these roles were reviewed and revised. The Board's Energy Returns Officer (ERO) monitored the financial performance of the gas utilities on an ongoing and confidential basis, and provided advice to the Board on financial, technical, accounting and other matters. The Board Secretary and staff ensured that the logistics of hearings proceeded smoothly and served as the custodians of all official Board records. The Board Solicitor provided legal advice to Board Members and staff and assumed respon- sibility for the cost awards function and process, while Board Counsel represented Technical Staff in the hearings process. The Administrative Support Group provided office management, financial, human resources, secretarial and information systems support Ontario Energy Board VICE CHAIR G A Donnny M C Rounding DIRECTOR TECHNICAL OPERATIONS EA Mills SENIOR PROJECT MANAGER M.D McLeod PROJECT COORDINATOR EW Sweet (Vacant) ASSISTANT PROJECT COORDINATOR (Vacant) SENIOR PROJECT MANAGER A.P. Barrett PROJECT COORDINATOR MC Garner P Tolton ASSISTANT PROJECT COORDINATOR H Desal zl. SENIOR PROJECT MANAGER B. H (A) PROJECT MANGER ENGINEERING C J Mackle PROJECT MANAGER ENVIRONMENTAL N J McKay PROJECT COORDINATOR BOARD SECRETARY PB Pudge ASSISTANT BOARD SECRETARY PH. O'Dell HEARINGS ASSISTANT J F Sakauye FILE & INFORMATION CLERK A. Macatangay SECRETARY Ft. Chiasson HEARINGS OFFICER J E Byrnes (A) Notes: (A) Acting (*) C B Mathis' Home Position (*) B. Hewson's Home Position March 31, 1997 10 services. SECRETARY TO THE CHAIR H K Wong (A) BOARD MEMBERS FULL TIME PW Hjrdie EJ Robertson P V.ahos HG Morrison R M Higg.n PART TIME FA Drozd J B Simon C Elwell ADMINISTRATIVE MANAGER P Lamba 3Z SECRETARIES N E Woodall ME Connor H. Wadden P Murtagh (Vacant) ZC RECEPTIONIST F Lafond ZL ENERGY RETURNS OFFICER/DIRECTOR OF FINANCE & ADMINISTRATION R A Cappadocia DEPUTY ENERGY RETURNS OFFICER A M Parekh (Vacant) MANAGER FINANCE & INFORMATION TECHNOLOGY A.F Meddows Taylor TEAM LEADER I T & OPERATIONS C Mathis (A) SENIOR SYSTEMS ANALYST PROGRAMMER/ ANALYST T Tran OFFICE SYSTEMS ANALYST G Mayer Powell FINANCIAL ASSISTANT S Lila FINANCE & ADMIN CLERK D.R Jess nz MANAGER OPERATIONAL PLANNING G A Brown BOARD COUNSEL J A Lea BOARD SOLICITOR S McCann SENIOR BOARD ADVISOR D B Matthew BOARD ADVISOR R L Pugh HEARINGS SUPPORT ANALYST R K Davidson LIBRARIAN L Bnrcilli Financial Report As a provincial agency, the Board is subject to the financial and administrative policies established by Management Board of Cabinet and the Minister of Finance. The Ontario Energy Board Act authorizes the Board to recover its costs by assessing costs against applicants, usually the utilities involved in hearings and related activities. Following a hearing, the Board issues an invoice to the applicant concerned. The amount to be paid includes the Board's out-of-pocket and direct expenses attributable to the specific hearing, as well as a contribution toward the Board's fixed costs, including overhead and payroll. The OEB recovers 100 per cent of its costs from the various applicants. This means the full cost of the Board's operations is recouped annually from the natural gas companies and Ontario Hydro, with no financial burden on the Ontario taxpayers. OEB Spending Analysis 1996-1997 Standard Account Estimates Approved' 1 ' Budget Actual Expenditures Salaries and Wages $2,851,900 Employee Benefits 358,800 Transportation & Communications 124,400 Services 1,232,700 Supplies & Equipment 130,100 $2,699,000 300,000 124,400 1,175,500 130,100 $2,683,424 372,336 122,728 788,778 280,747 TOTAL $4,697,900 $4,429,000 $4,248,013 Notes: (n Budgetary reductions due to in-year Ministry expenditure control measures. y \ ii An Evolving Energy Marketplace The distribution of gas involves an extensive network of pipelines and storage facilities requiring sub- stantial capital investments. Natural gas supplies about 32 per cent of Ontario's end-use energy needs. It is the leading energy source for Ontario industry, accounting for 39 per cent of industrial energy demand. Gas also supplies 58 per cent of residential energy and 49 per cent of energy in the commercial/ institutional sector. Electricity supplies a further 18 per cent of Ontario's energy demand. Its uses range from lighting and heating, to powering information technology, to fueling industries like automobile manufacturing, pulp and paper and mining. The balance of Ontario's energy requirements are met by oil, coal, wood and natural gas liquids, such as propane. Natural Gas Sales and Distribution Ontario obtains some 93 per cent of its gas supplies from the western Canadian provinces through the TransCanada PipeLines Limited (TCPL) and related systems. The province also imports about 5 per cent from the United States and produces approximately 2 per cent itself. In Ontario local gas utilities pass the cost of gas through to the customer without markup. The com- modity cost of gas accounts for 25 to 30 per cent of the price paid by a typical residential end user. About 1 5 per cent of the rate covers the transportation cost to Ontario, while the balance of 55 to 60 per cent covers the distribution and operating costs of the local utility. Ontario has more than half of Canadian gas storage capacity. The main storage sites are developed from depleted natural gas fields in southwestern Ontario. These storage reservoirs are filled during the summer when demand for gas is low, and drawn down in winter when demand is high. The use of storage makes for an efficient system with lower costs to customers. Local Distribution Companies (LDCs) The distribution of gas involves an extensive net- work of pipelines and storage facilities requiring substantial capital investments. A monopoly arrangement is used to avoid costly duplication of facilities. Almost all natural gas in Ontario is distributed by four utilities holding franchises and certificates to transport gas in specific areas of the province. The Consumers' Gas Company Ltd. (Consumers Gas) is Canada's largest natural gas distribution utility, serving approximately 1 .3 million customers in central and eastern Ontario including the Greater Toronto Area, the Niagara Peninsula, Ottawa and many other communities. It also provides a wholesale service to gas distribution companies outside its franchise area. Consumers Gas is a wholly-owned subsidiary company of IPL Energy Inc. (formerly Interprovincial Pipeline System Inc.) Union Gas Limited (Union) is the second- largest gas distributor in the province and serves approximately 774,000 customers in southwestern Ontario. It also operates a network of transmission, storage, and compression facilities for customers and other utilities in eastern Ontario, Quebec and the United States. Union is owned by Westcoast Energy Inc. Centra Gas Ontario Inc. (Centra) reaches some 254,000 customers in northern, central and eastern Ontario. The Centra network is composed of a number of lateral pipelines running off the TCPL system, starting at Kenora and extending to Lake Ontario and the St. Lawrence River. It is also owned by Westcoast Energy Inc. Where gas is purchased directly from the producer, the buyer has to make transportation arrangements to carry the gas to its destination in Ontario. One option is T-service, used extensively by large- volume customers. The user purchases and takes title to gas outside Ontario and has it transported via TCPL and the LDC to the burner tip. A second option is known as buy-sell. It enables small gas users to participate in the direct purchase market, chiefly through purchasing groups organized by brokers and agents. In March 1997 the Board recommended that the LGIC approve the proposed amalgamation of Union and Centra, which was to take effect no later than January 1 , 1998. Natural Resource Gas Limited (NRG) is a privately-owned utility serving about 4,000 customers in the Aylmer area. The Board regulates the rates charged by these four companies. In addition, Ontario has five small gas companies that are exempt from rate regulation under the OEB Act, and two municipally- owned gas utilities that are not regulated by the Board. Natural Gas Market Deregulated Since 1985 the Canadian natural gas industry has evolved into a more competitive, deregulated market. Consumers can now purchase gas from producers directly or through an agent, marketer or broker, and negotiate their own prices. This supply alternative is known as direct purchase. Customers still have the choice of purchasing gas from their local gas utility. In a typical arrangement, the broker buys gas from producers and sells it to the LDC in western Canada or at the Ontario border at a reference price approved by the OEB. The buy-sell reference price is based on the utility's weighted average cost of gas. The gas becomes part of the utility's system supplies and the customer pays the LDC's regular retail rate for gas consumed at the burner tip. The customer usually receives a rebate, generally representing a portion of the difference between the price paid to the producer and the buy-sell reference price paid by the LDC. In 1996-97 a third direct purchase option was approved by the OEB — agency billing and collection (ABC) T-service. This service enables brokers to bill their customers directly through the LDC for the gas supply costs. Under this arrangement, the name of the broker and the gas supply charges appear on the customer's monthly utility bill. The gas supply charges are collected by the LDC on behalf of the broker. The price a customer pays for gas has no defined relationship to the regulated price of gas. 13 At the end of calendar year 1996, the three major utilities had approximately 671 ,000 direct purchase customers — representing 29 per cent of total customers and including 592,000 residential cus- tomers. Direct purchase accounted for 69 per cent of total gas volumes delivered in Ontario — representing 30 per cent of residential volumes, 66 per cent of commercial volumes and more than 90 per cent of industrial volumes. During 1996-97 Consumers Gas established a marketing affiliate, joining the Union affiliate established earlier, to compete head-on with brokers in the direct purchase market. A Direct Purchase Industry Committee (DPIC), formed with the OEB's encouragement, brings together representatives of agencies, brokers, marketers, consumers, industrial users and utilities to foster the development of a more competitive market, improve operation of the market and establish customer protection measures. Continental Gas Market Emerging The North American gas market is becoming increasingly open. Construction of more connec- tions with U.S. pipelines is expanding access to U.S. gas and providing alternate routes for shipping western Canadian gas to eastern markets. Hubs where gas can be traded and picked up are emerging across the continent. To capitalize on new opportunities, several major pipeline operators, local distribution companies and marketers in Canada and the United States are partnering to create a new west-to-east transportation link. Canadian participants include TCPL, IPL Energy Inc. and Westcoast Energy Inc. Four pipeline projects are involved — running from Alberta to Manitoba, then to the Chicago area, next to Dawn, Ontario and finally from Dawn to New York City. Subject to regula- tory approval, the individual projects that will forge the new west-to-east link are projected to begin service in late 1999. New Corporate Strategies While the gas supply market is evolving, the utili- ties are diversifying. Ontario gas companies are becoming active in fields ranging from municipal waterworks pipeline construction to the reading of water and electricity meters. The OEB addressed the regulatory implications of this development in its Report on Utility Diversification released this year. The Board concluded that utility diversifica- tion into non-regulated businesses should not be prohibited, provided that ratepayers are expected to benefit or, at a minimum, are protected against adverse consequences. In the United States the merger of utilities is a pronounced trend, one that has appeared in Ontario with the pending amalgamation of Union and Centra, approved by the government following an OEB hearing in 1996-97. Regulatory Framework Under Review In response to a dynamic gas market environment, the Board in 1995-96 commenced a 10-Year Market Review to examine the changes necessary in the regulatory framework to accommodate a more competitive natural gas market in Ontario. The review initially took a work- shop format, followed by creation of a working group with industry, customer and public interest group representatives scheduled to report to the Board in the spring of 1997. A key issue in the ongoing review is the separation of the merchant function from the LDCs' transportation/ distribution function. Electricity Generation, Sales and Distribution Ontario Hydro (Hydro), a provincially owned corporation, generates and transmits most of the electricity in Ontario. Hydro was created by provincial statute in 1906 and operates today under the Power Corporation Act. Hydro's system includes 29,000 kilometres of transmission lines and 109,000 kilometres of distribution lines, as well as 69 hydroelectric stations, five nuclear stations and six operating fossil-fuelled stations. The generation breakdown among these stations in calendar 1996 was: 54 per cent nuclear, 26 per cent hydroelectric, 13 per cent fossil and 7 per cent from other sources, such as independent power producers. Hydro sells power wholesale to 306 municipal utilities, who resell it to more than 2.9 million residential and business customers. Hydro also sells directly to almost 1 million retail customers including 103 large industrial users. Electricity Market in Flux The Advisory Committee on Competition in Ontario's Electricity System released its report in June 1996. The committee called for an end to Ontario Hydro's monopoly over electricity generation and transmission and the introduction of competition among power generators, who would have open access to the provincial transmission system. The report recommends separating Hydro's nuclear, hydroelectric and fossil fuel facilities and requiring them to compete as commercial businesses in a competitive market in which all producers — including out-of-province suppliers — could compete for electricity sales to customers. At the same time, responsibility for maintaining and managing Hydro's transmission assets would be moved to an independent transmission grid company. The committee proposed introducing competition first in the wholesale electricity market, which would affect power sales to municipal utilities and large industrial power users. Ultimately, the report recommends that Ontario should move to adopt full retail competition in electricity. The government's response to the report was awaited as the fiscal year ended. 15 Streamlining Regulation and Operations The OEB's Strategic Plan adopted in 1995 recognizes electronic filing as a key opportu- nity to streamline the regulatory PROCESS. Competitive trends in the energy marketplace are lending impetus to new approaches to regulation. In response, the OEB is working with stakeholders to alter the way it does business and move towards more streamlined, light-handed regulation. Reorganization Gets Green Light OEB senior management decided to launch an internal Restructuring Initiative to utilize the Board's resources as efficiently and effectively as possible, position the Board to respond to changing regulatory roles, solidify core competencies, and advance the OEB's Mission and Vision of being recognized as in the forefront of utility regulation in Canada. The Board also decided that there would be a shift from the OEB's traditional two-staff model to a one-staff model, so that there would not be an unnecessary duplication of effort and Hearing Panels would be provided with appropriate support. The one-staff approach calls for the formation of project teams for each case, comprising the Hearing Panel Members, Technical Staff and a Case Administrator providing administrative support. No longer parties to the proceeding, Technical Staff will work with Board Members throughout the case. The restructuring project team identified the objec- tives, assumptions and functions for a restructured organization; held interviews with internal person- nel and senior officials of other commissions; and reviewed relevant organizational models. The Restructuring Report was submitted to the Chair in late December, and a new organizational model was approved by the Chair in February and the Deputy Minister of Environment and Energy in March 1997. Implementation began immediately and will be completed in 1997-98. Key directions arising from the Restructuring Report for the OEB's reorganization include: • strengthening of the audit and monitoring capability in anticipation of utility diversification, which will require new regulatory controls; • creation of a research and policy development function to respond to increasing expectations for the Board to shape regulatory policy; • establishment of a single unit to focus the processing of all applications to the Board; and • establishment of the corporate services area to consolidate the Board Secretary, information technology and operations, business services and planning and legal services areas. Electronic Regulatory Filing Moves Ahead The OEB's Strategic Plan adopted in 1995 recognizes electronic filing as a key opportunity to streamline the regulatory process. The OEB has joined with the National Energy Board to launch an Electronic Regulatory Filing (ERF) Project to meet the needs of the two Boards and their stakeholders. 16 The first phase of the project, referred to as Information Architecture Design & Development (IADD), began in January 1996. This phase consists of analysis and design work for both jurisdictions, a detailed Cost Benefit Analysis and a limited implementation as a Proof of Concept. Ultimately, ERF will enable all regulatory documents to be efficiently and securely searched, accessed, submitted and exchanged among all regulatory participants, using whatever form of electronic transmission is appropriate, including the Internet, without regard to the original program used to prepare the data. During 1996-97 the Cost-Benefit Analysis (CBA) was completed, involving a confidential survey of a cross-section of the regulatory community. The study concluded that the ERF system would pay for itself in approximately three years. Significant benefits are expected from paper savings (with the user printing only what is needed), shorter regulatory timeframes (due to faster document turnarounds) and potential quality improvements (due to easier research based on standard document formats). A further survey was planned for summer 1997 to confirm the initial CBA results. The project team also began the process of analyzing regulatory documents to define common structures, so documents can be readily used and exchanged on any type of computer. In addition, work is proceeding on security issues. For exam- ple, digital signatures may be used to authenticate documents so they can serve as the official, legal record. The IADD stage is due for completion in September 1997. At that time, the OEB will determine whether to proceed with full implemen- tation toward a fall 1998 target date for the Board's first electronic filing. Improving the Hearing Process A major strategic priority for the Board is to streamline the hearing process. A committee of OEB employees has furthered this objective by co-ordinating a series of procedural innovations such as the following: • The OEB continues to encourage settlement processes as a potential way of resolving rates and other issues more efficiently than through the traditional adversarial approach. Under the settlement concept, the parties meet prior to the main proceeding to clarify information, narrow issues and where possible reach a consensus. Any agreement among the parties is submitted to the Board for approval. The Board is in the process of further develop- ing its Settlement Guidelines — to address such issues as the roles of the various parties and the criteria the Board uses to review a settlement agreement — in consultation with stakeholders. • Another example of innovation is the increasing use of flexible formats such as workshops, consultatives and working groups to address policy issues, including the structure of the natural gas market and the diversification of natural gas utilities. In addition, the Board is invoking written hearings in straightforward matters, such as franchise renewals, as an alternative to time-consuming oral proceedings. • In a further effort to streamline regulation, the Board developed Draft Guidelines on a Formula-Based Return on Common Equity for Regulated Utilities and decided to test this approach in the Consumers Gas fiscal 1998 rates case. The use of a generic formula-based model for calculating the return on common equity for all utilities is expected to reduce the regulatory burden. 17 Amendment to OEB Act Proposed Bill 121 , the Red Tape Reduction Act (Ministry of Environment and Energy), 1997 proposes to amend section 1 9 of the Ontario Energy Board Act concerning the natural gas rate-making process. Introduced in the Legislature in February 1997, this measure is one of a number of bills designed to reduce red tape and create more efficiency in government. In tabling the Bill, the Honourable Norman Sterling, Minister of Environment and Energy, stated that it was intended to give "the OEB greater flexibility in setting rates for natural gas, resulting in a streamlined regulatory process". Bill 121 would amend section 19 of the Ontario Energy Board Act to permit the Board to use a different methodology for determining rates from the methodology currently set out in subsections (2) to (6) of section 19. Those subsections provide that the Board, in setting rates, must determine a rate base for the utility and then determine a reasonable rate of return on that rate base. These determinations require detailed findings of fact made on the evidence presented at a public hearing. If the amendment is enacted, the Board will have the ability, in appropriate circumstances, to adopt a more flexible approach to setting rates. A more flexible approach may allow the Board to modify its processes and to create incentives for the utilities to become more effi- cient. Bill 121 was still before the Legislature at the end of the fiscal year. The Public Hearing Process INITIATION • By application for rate increase or other approval • By reference from Lieutenant Governor in Council or Minister • On Board's own motion. NOTICE OF APPLICATION • To all interested parties and/or by publication. INTERVENTION • Notice of intent and reasons for participation in hearing by parties, known as interveners. PREHEARING DOCUMENTATION • Evidence filed by applicant prior to hearing • Intervenors can request more information and file their own evidence • Intervenors may be asked for more information. PRE-HEARING MEETINGS • Technical conferences to clarify the evidence • Issues meeting to propose to the Hearing Panel the issues to be covered • Settlement conferences to negotiate issues prior to hearing. HEARING OF EVIDENCE • Hearing Panel reviews settlement agreements proposed by parties and may approve or reject them • Witness panels presented by applicant and/or intervenors • Cross-examination by applicant and/or intervenors • Written or oral argument by each party. BOARD DECISION/REPORT • Summarizes issues and arguments • Makes findings or recommendations. BOARD ORDER • Binding direction to implement Board decision. Roles of Practice and Procedure Issued The procedures of the Board, as an administrative tribunal, are governed by the Statutory Powers Procedure Act. Amendments to this Act effective April 1, 1995 gave tribunals the power to establish their own rules of procedure. With input from stakeholders, the OEB updated the draft rules then in use and on February 1, 1997 issued its Rules of Practice and Procedure. The new rules recognize recent changes in regulatory practice, with more detailed guidance concerning settlement conferences and agree- ments and other pre-hearing procedures. They also introduce provisions for electronic and written hearings. The rules are available in both English and French, and will be updated on a regular basis as needed. Cost Awards Process to Change The updated rules also contain new provisions on cost awards, which the OEB — like some other tribunals — has jurisdiction to make at the conclu- sion of a proceeding. Since the OEB's activities can affect a variety of public and special interest groups, its proceedings attract a wide range of intervenors. Energy Probe, Pollution Probe, the Consumers' Association of Canada, the Ontario Federation of Agriculture, the Industrial Gas Users Association and the Ontario Native Alliance were among the dozens of parties to appear before the Board in 1996-97. At the end of the year, the Board was refining the criteria to be used in determining eligibility for and the level of cost awards. The Board planned to seek stakeholder input on these issues in 1997-98. Intervenor Cost Awards 1996-1997* Case Type Proceedings (#) Intervenor Cost Orders Issued (#) Amount Awarded Natural Gas Rates Diversification Ontario Hydro - Bulk Power Rates 8 1 2 41 12 15 $926,573 380,977 603,589 TOTAL 11 68 $1,911,139 *Refers to fiscal year in which cost award was issued. Hearings occurring in one fiscal year may not have cost awards issued until a subsequent fiscal year. 19 Advisory Committee Formed This year, the OEB established an External Advisory Committee to provide stakeholders with an opportunity to discuss regulatory and procedural issues informally, outside the hearing room. Chaired by the OEB Chair, the group includes representatives of the gas utilities, Ontario Hydro, brokers, marketers, consumers, environmental groups and industrial energy users. The Committee provided input on such initiatives as the Board's Rules of Practice and Procedure and the process to be followed in completing the 10-Year Market Review and has proven to be an effective mechanism for enhancing communication between the Board and its stakeholders. Agency Reform Under Way In February 1997, the Government Task Force on Agencies, Boards and Commissions, chaired by MPP Bob Wood, submitted its Report on Restructuring Regulatory and Adjudicative Agencies. The Task Force, which reviewed 79 agencies, recommended that the OEB be retained in its current form. In addition to recommendations concerning specific agencies, the Task Force proposed reforms across the regulatory sector to produce an administrative justice system that is more streamlined, responsive and efficient. An Agency Reform Commission, chaired by MPP Gary Guzzo, has been appointed to oversee a major government project to implement this reform agenda. The OEB Chair serves on the government-wide Working Group which is assisting the Agency Reform Commission to co-ordinate agency reform projects. OEB staff as well have contributed to the agency reform initiative. Performance Management Implemented During the Board's strategic planning process in 1995, staff made clear that performance manage- ment is important to them. Hence a key initiative in the OEB's Strategic Plan is the implementation of an effective performance management system. The components of the performance management process are: the setting of mutually agreed objec- tives and measurable criteria for each employee, frequent communication between employee and supervisor, and an annual evaluation of performance, followed by the setting of new objectives and identification of training needs. In 1996-97 the OEB completed all steps in the process for all eligible employees. \/ 20 1996-97 Regulatory Agenda Highlights of some of the OEB's major proceed- ings and regulatory initiatives during the year are reported below. Ontario Hydro Hearing Review of Hydro's Proposed 1997 Rates (HR 241 In April 1 996 the OEB received a Letter of Reference from the Minister of Environment and Energy requesting the Board to review and report on Hydro's proposal to change certain rates and introduce some new rate options as of January 1 , 1997. Hydro confirmed that there would be no increase in average rates through the year 2000. The Minister requested the Board to focus on whether Hydro had ensured that fairness and equity were maintained for all customer classes and specifically to examine: • the impact of the rate proposals on Hydro's financial soundness, the reduction of Hydro's debt and the reliability and quality of service to all Ontario's electricity customers and • the appropriateness of the proposals with regard to generally accepted ratemaking principles. The hearing was held from mid-June through early July 1996, with the Board's Report submitted to the Minister at the end of August. The Board found that Hydro's rate proposals would not adversely affect the utility's financial soundness or debt reduction targets, nor would they have a material impact on reliability and quality of service. However, the Report noted that as Hydro's surplus capacity diminishes, reliability and quality of service issues will become increasingly important. In the Board's view, Hydro's documented rate- making principles did not significantly deviate from generally accepted ratemaking principles. However, the Report recommended ways in which Hydro's proposals could be made to better conform to generally accepted ratemaking principles, particularly with regard to simplicity, public accept- ability, fairness and avoidance of discrimination. The Board also examined the compatibility of Hydro's rate proposals with Hydro's status as a monopoly and with potential restructuring of the electricity industry. The Board considered it impractical and inappropriate for Hydro to be anticipating in its rate proposals the potential restructuring of the electricity industry at that time. Regarding standard rates, the Board accepted Hydro's proposal to change the peak period for demand charges from 7 AM - 1 1 PM to 7 AM - 7 PM during June, July and August, as these changes were supported by system cost information. As to optional rates, the Board did not agree with Hydro's intention to negotiate and sign long-term contracts. The Board recommended that Hydro's rate contracts should not extend beyond three years, due to uncertainty about whether or how Hydro's monopoly will be continued, and in view of the expectation that Hydro's surplus capacity will disappear by 1999. The Board found that Hydro's Rate proposals would not adversely affect the utility's financial soundness. 21 / / \ \ \ \ \ The Board recommended a revision of Hydro's review and approval process related to the Load Retention and Expansion Price option, in such a manner that the rates are seen to be transparent, fair and equitable and in the public interest. A moratorium on new applications and on further processing of current applications was urged until this revision is completed and reviewed in a public forum. The Board also believed that Hydro's proposed five-year Guaranteed Price imposed inappropriate risks on non-participants, and that the planned U.S. dollar price option involved unnecessary foreign exchange risks. In the Board's view these options should not be offered. The Report urged Hydro to phase out the Real Time Pricing I option — in which customers purchase electricity at hourly rates set a day ahead — as support for economic development and social policy initiatives should not be reflected in public utility rates. The Board also concluded that the Discount Demand Service — which offers a rate discount in exchange for the right to interrupt service — should be replaced with a menu of interruptible rates based on avoided costs. In addition, the Board found that Hydro's Surplus Power Price option, Real Time Pricing II experi- ment, menu of backup rates, and Capacity/Energy Contracting experiment should be continued, subject to some modifications. The Board observed that Hydro's proposal this year should have but did not deal with the following issues identified by the OEB last year: addressing stranded assets; the unbundling of rates to produce transparent cost-based rates that send effective signals to customers; and the effective public review of load retention applications. The Board recommended that Hydro not come forward with further rate proposals until it is able to deal in a meaningful way with these issues. Natural Gas Rates Hearings Consumers Gas: Main Rates Fiscal 1997 [EBRO 4921 In December 1995 Consumers Gas filed an application with the OEB for rate changes for the 1997 fiscal year, commencing October 1, 1996. A settlement conference was held in April 1996 followed by a hearing in May and June. The Board's Decision with Reasons was issued on September 10, 1996. The Board found an overall revenue deficiency of $1 .6 million, an amount revised to $3.5 million as a result of amendments to the Decision issued later in September. This compared with the $33.6 million gross revenue deficiency proposed by the Company and the $9 million deficiency proposed in the settlement agreement. The Board approved a return of 1 1 .5 per cent on a common equity component of 35 per cent, compared with the Company's requested 1 1 .875 per cent return on common equity. Rate base was set at $2,831 .3 million. The Board generally approved the Company's proposals with regard to cost allocation, rate design and demand side management activities. The Board accepted the Company's commitment to provide the results of its review of all aspects of interruptible rate design at the next rates hearing. The Board also accepted the Company's proposal to offer Agency Billing and Collection (ABC) T-service, in which the local distribution company 22 / / I \ \ \ bills and collects the costs of gas supplies to its direct purchase customers on behalf of the agent, broker or marketer, for a fee. An essential condition of the OEB's acceptance of this ABC service was the development of a Code of Conduct for those parties who propose to offer it. The Direct Purchase Industry Committee (DPIC) was given responsibility to produce the Code of Conduct, which would be required to include significant consumer protection measures. In addition, the Board required DPIC to produce for the Board's review a customer information package (CIP), to ensure that all ratepayers are aware of all available purchasing options and their consequences. (The Board approved the ABC Service Code of Conduct and CIP for Consumers Gas franchise areas in late February 1997.) The Board found that the proposals for ABC billing and collection may be initially instituted within the utility on an interim basis. The Board will review a comprehensive cost allocation study, to be presented at the next main rates case, to deter- mine whether ABC service should be classified as a non-utility service. The OEB approved the Company's proposal to offer purchasers located outside the Consumers Gas franchise area the use of utility assets in off- peak periods through transactional services. The Board made clear that the sale of these services — such as gas loans, storage service and transportation entitlements — must not result in increased gas costs to ratepayers. At the same time, the Board denied the Company's forecast operating costs for the electronic gas trading board, as the Board was not convinced that the potential benefits of this service justified continua- tion of this initiative. The Board also approved the Company's proposed increases in the fixed monthly service charge to $7 from $6.75 for residential customers and to $12 from $10 for non-residential customers where a large volume contract is not appropriate. The Board expressed concern about the lack of progress in improving the relationship between customer charges and underlying costs. It there- fore requested, at the next rates hearing, a proposed timetable of increases to fixed monthly customer charges, information as to the accept- ability of proposed increases, and a proposed program to provide information to the customers who may perceive unfairness in such increases. The OEB did not approve the Customer Information System (CIS) capital budget allocation of $20.6 million for fiscal 1997, part of the Company's Strategic Information Management (SIM) Plan. The Board had concerns about the integrity of the forecast and cost controls supporting the CIS. The Board issued a Rate Order at the end of September 1996. The new rates were effective October 1 , 1996, and were expected to be implemented by that date and in any case no later than the first billing cycle after October 31 . Any impact on customers due to the disposition of the balances in the various deferral accounts was to be incorporated as a one-time adjustment in the first billing for each customer following the date of implementation of the new rates. Consumers Gas: Rehearing CEBRO 492-OU In November 1996, the Board received an application from Consumers Gas to rehear certain aspects of the EBRO 492 ruling that dealt with the Customer Information System (CIS), a major component of the Company's Strategic Information Management (SIM) Plan. on Consumersfirst, a non-subsidiary marketing affiliate of Consumers Gas, established to provide natural gas direct purchase options. In a written Decision with Reasons issued in December, the Board determined that it would not hold a hearing to reconsider the decisions relating to CIS. The Company had not provided sufficient grounds for a rehearing in accordance with the Board's Rules of Practice and Procedure. The Board was of the view that the Company will be able to seek approval of all SIM costs, including the fiscal 1997 CIS costs previously disallowed, at its next main rates case. Consumers Gas: Gas Costs (EBRD 492-02] In January 1997, the Board received a Notice of Motion filed by Consumers Gas for an order varying the EBRO 492 Rate Order to reflect a change in the cost of gas. In a Decision with Reasons issued in February, the Board accepted the Company's proposal to reflect the higher costs in rates effective March 1, 1997. Consumers Gas: Main Rates Fiscal 1998 (EBRO 4951 In December 1 996 Consumers Gas filed a rate application for fiscal 1998, beginning October 1, 1997. Technical and issues conferences and an Issues Day were held in February 1997 and the hearing was scheduled to begin in May. In March 1997 the Board issued a Procedural Order setting out the OEB's Draft Guidelines on a Formula-Based Return on Common Equity for Regulated Utilities, to be used in calculating the return on common equity for Consumers Gas. The order also required the Company to file evidence Union: Gas Costs [EBRO 486-04/486-04A3 Union filed two motions in February 1996, one to vary the EBRO 486-03 Rate Order to reflect an increase in the Company's cost of gas and new TCPL tolls, and the other to request disposition of the forecast Purchased Gas Variance Account (PGVA) balance for fiscal 1996. The PGVA debit balance had been increased by additional costs for gas purchased due to unusually cold weather. A hearing was held in March 1996. In April 1996 the Board issued its Decision with Reasons and Rate Order. The Board approved an updated weighted average cost of gas effective January 1 , 1996 and on that basis determined that the PGVA debit balance for winter spot gas premium costs should be adjusted to $21 .631 million. The OEB expressed some reservations about the effectiveness of Union's gas supply planning process and determined that Union's implementa- tion of its gas supply plan was deficient. The Board determined that Union should have purchased a higher volume of gas for delivery in December 1995 at the lower price. The Board, therefore, found that an amount of $5.14 million should be borne by the shareholders and directed that this amount be removed from the PGVA balance considered for disposition to customers. The Board also determined that the amount of $4,982 million associated with gas volume increases for Company use, unaccounted-for gas and heating value adjustment should remain 24 in the PGVA. The Board directed Union to bring forward a proposal in the next main rates hearing for disposition of this PGVA debit amount. The net PGVA balance approved by the Board for recovery at this time was $1 1 .509 million. In the Board's view all residential, industrial and commercial customers in rate classes M2, M4, M9 and M10 — whether system customers, buy/sell customers or bundled-T customers — derived some benefit from Union's actions and should therefore contribute to the recovery of the PGVA debit balance of $1 1 .509 million. The allocation was to be based on the volumes consumed by customers in these rate classes for the period November 1, 1995 to March 31, 1996. The Board directed Union to collect the PGVA debit through a one-time charge to the affected customers, except for the large industrial M4 users from whom the allocation was to be recovered by a rate rider for the period May 1 , 1996 to April 30, 1997. In May 1996 the Board received a Notice of Motion from Union for a rehearing and review of the Board's decision relating to the disposition of Union's Purchased Gas Variance Account. In July 1996 the Board ruled that it would not rehear or review its original decision. Later in the month, the Board was served with a Notice of Motion from Union in which the Company sought leave from the Ontario Divisional Court to appeal the Board's Decision. In October 1996 the Court dismissed Union's motion for leave to appeal, stating there was no denial of natural justice. In addition, the Court found that the Board's Decision could not be said to be so unreasonable that it amounted to an error of law. The Board's Decision stands. Centra/Union: Main Rates Fiscal 1997 (EBRO 493/494/EBRLG 34-19/EBO 177-991 In March 1996 Union and Centra (the Companies) each filed applications for approval of rates for the 1997 fiscal year, beginning January 1 . In view of the common fiscal years and the shared services arrangements between the two utilities, the Companies asked the Board to deal with their applications together in a joint proceeding. Earlier, in February 1996, the Board had received an application for approval under the Companies' respective Undertakings for payments to Westcoast Energy Inc., the parent company, related to the provision of services to Union and Centra during 1996. In May the Board combined this application and the two rates applications in a single proceeding. The hearing was held in October and November 1996, following completion of a settlement process. Subsequent to the hearing, both utilities sought and received approval for interim cost of gas changes effective January 1 , 1997 and March 1, 1997, respectively. In March 1997 the Board issued its Decisions with Reasons. For Union, the Board found a revenue excess of $29.5 million, compared to a claimed deficiency in the original filing of $42.5 million. This resulted in an overall decrease in the 1997 rates then in place. Utility rate base was set at $2,214.2 million. The Board approved an 1 1 per cent rate of return on the shareholder's common equity representing 34 per cent of total capital, compared with Union's requested 12.75 per cent return on common equity and the 1 1 .5 per cent return recommended in the ADR settlement agreement. ... the Court found that the Board's Decision cocjld not be said to be so unrea- sonable that it amounted to an error of law. 25 The Board also authorized the clearance of the 1996 year-end balances in Union's deferral accounts related to the higher than forecast cost of gas in 1996 and other charges. Union was authorized to recover the deferral account balances, less the refund of the approved rate decreases for January through May 1997, through two monthly payments. For Centra, the Board found a revenue deficiency of $1 1 .7 million, compared to a claimed deficiency of $44.6 million in the original filing. This lowered the Company's overall increase in rates for 1997. Utility rate base was set at $786 million. The Board approved an 1 1 .25 per cent rate of return on a common equity component of 36 per cent, com- pared with Centra's requested 1 3 per cent return on common equity and the 1 1 .75 per cent return recommended in the ADR settlement agreement. The Board required the Companies to meet the conditions precedent in the Consumers Gas ABC T-service regarding customer education. In the Board's view the customer information package developed for the Consumers Gas franchise area was appropriate for use in the Centra and Union franchise areas, with some modifications. The Companies had proposed an increase in the cost and scope of services provided by the Westcoast Corporate Centre in Vancouver from $683,000 in 1995 to $5.2 million in each of 1996 and 1997. The Board approved $2.26 million for each year based on the expected benefit to ratepayers. In addition, the Companies received approval of a new five-year combined Demand Side Management Plan, which corrected deficiencies the Board had found in Union's previous Plan. The Board also authorized the clearance of Centra's deferral accounts related to the higher than forecast cost of gas in 1996 and other charges. Centra was authorized to recover the actual deferral account balances and the approved rate increase amounts for January through May 1997 through four equal monthly payments. The Board declined to approve a number of proposed changes to the Companies' direct purchase arrangements. The Board did authorize a change to Union's buy/sell pricing methodology for direct purchase to reflect only the avoided cost of firm supplies. It also approved a new ABC (Agency Billing and Collection) T-service to be offered by Union and Centra, allowing direct purchase agents to put their customers' costs of gas on the utility bill for a fee. NRG Main Rates Fiscal 1996 and 1997 (EBRO 491] In August 1995 Natural Resource Gas Limited filed an application for approval of rates for its 1996 and 1997 fiscal years commencing October 1, 1995 and October 1 , 1996, respectively. A settlement conference took place in early January 1996, leading to an agreement on a wide range of issues. The hearing of the evidence was held in mid- January 1996. The Board released a Decision with Reasons in April 1996, finding a revenue sufficiency of $164,749 for fiscal 1996 and a further revenue sufficiency of $145,130 for fiscal 1997. A return on equity of 1 2.25 per cent was approved for each of the two fiscal years, compared with NRG's requested annual return on equity of 12.55 per cent. Rate base was set at $6,659,681 for fiscal 1996 and $7.51 1,491 for fiscal 1997. 26 In line with the settlement agreement, the Board approved a two tier trigger mechanism for clearing the Purchased Gas Variance Account (PGVA). NRG is required to advise the Board when the forecast year-end PGVA balance exceeds $20 for a typical residential customer and further report when it exceeds $30. The reports are to include a recommendation from the Company regarding the disposal of the balance in the PGVA or an explana- tion of why disposal would be inappropriate. The Board accepted proposed changes to NRG's cost allocation methodology as well as the restruc- turing of rates in the various rate classes, with the exception of the inverted winter commodity rate for Rate 2 customers. Other Proceedings System Expansion CEBO 188) In July 1995, on its own motion, the Board issued a Notice of Public Hearing into matters relating to natural gas system expansion, including a consideration of demand-side options in supply- side planning by the three major utilities. Areas to be examined included: appropriate methodologies and standards for evaluation of economic feasi- bility; public interest considerations; profitability levels; types and levels of subsidy; consistency between demand-side and supply-side planning processes; and socioeconomic and environmental factors. As a result of a settlement conference in December 1995, the Board concluded that it needed first to determine the principles that should underlie a policy on distribution system expansion. In January 1996 the OEB called for written submissions on a series of issues and in August it released an Interim Report. This document contained decisions on issues of principle and directed the utilities to file draft system expansion guidelines and policies reflecting these findings. In the Interim Report the Board determined that a public utility does not have an obligation to serve without regard for the cost of providing the necessary infrastructure. The Board then considered the utilities' proposal to use a portfolio approach in analyzing the financial feasibility of distribution projects. Under this concept, each utility would group all of its new projects together and the utility's overall portfolio would be required to be financially self-sustaining. Observing that such an approach would be more consistent with the objectives of "light-handed" regulation, the Board found that grouping all of a utility's proposed distribution customers for a test year into one portfolio for the purpose of ascertaining the financial feasibility of serving them would provide the utilities with more flexibility in designing their delivery network and is in the public interest. The Board indicated that the profitability index (PI) of the proposed projects should be aggregated to calculate the overall portfolio PI. The Board noted that an overall rolling portfolio PI of 1 .0 means that existing customers will not incur a rate increase over the long term as a result of distribution system expansion. The Board was therefore of the view that an overall portfolio PI of 1 .0 or better is in the public interest. The Board added it expects the utilities to develop common methods for determining whether or not each utility's portfolio of distribution system expansion projects is profitable, as well as common reporting requirements. 27 / / 1 \ \ \ \ ^wmw^m ... CUSTOMERS WOULD RECEIVE A NET BEMEFIT FROM THE MERGING OF THE TWO COMPANIES... Finally, in order to demonstrate that system expan- sion continues to be in the public interest from an aggregate economic, social and environmental point of view, the Board will require the utilities to file the results of a societal cost test of their overall system expansion portfolios — a test that could include monetized, non-monetized and qualitative components. The Board requested the utilities to develop a common evaluation method for this purpose. In response to the Interim Report, the three major utilities filed a Common Submission and Guidelines in September 1996. After reviewing the comments of interested parties on this submission, the Board found that differences existed as to the common methods for the financial test to determine the feasibility of system expansion, the projects to be included in the utilities' portfolios, and how the performance of these portfolios is to be evaluated. A workshop on system expansion was held at the Board's offices in December 1996, and an ADR session to address outstanding issues regarding implementation of the Interim Report took place in late January and early February 1997. The Board received a settlement agreement in March 1997, followed by a statement of deficiencies in the settlement agreement, submitted by some of the parties. At year end, the Board was considering the settlement proposals to determine the next steps in the proceeding. Union/Centra: Amalgamation (EBO 1951 In September 1996 the Board received an appli- cation from Westcoast Energy Inc. and its sub- sidiaries Union and Centra for leave to amalgamate the two utilities no later than January 1 , 1998. While one-time costs of $2.9 million were pro- jected to effect the amalgamation, the expected savings from administrative and operational efficiencies were estimated at $2.1 million on a yearly basis. The Board held a hearing in January 1997 and issued a report in March 1997. In assessing the application, the Board considered the impact on rates and services, shareholders and investors, employees and the communities the utilities served. The Board also weighed the regulatory implications and the general public interest. The OEB found that, overall, customers would receive a net benefit from the merging of the two companies, with no countervailing harm to any specific customer group or stakeholder. The Board was satisfied that any cost allocation or rate design concerns could be addressed in future rates proceedings. The Board found that the amalgamation proposal was in the public interest, and recommended LGIC approval, subject to revised Undertakings being effected. Consumers Gas: Utility Services [EBO 179-11] In January 1997, Consumers Gas filed an applica- tion for approval under the Undertakings of an affiliate transaction with Consumers Gas Energy Inc. (CGEI) relating to the Integrated Utility Services Project described below. CGEI is the parent company of Consumers Gas and is indirectly owned by IPL Energy Inc. through two subsidiary companies. The application requested approval for provision of billing services, meter reading and cashiering services — the Integrated Utility Services 28 Project — by a joint venture comprised of CGEI and TransAlta Energy Corporation. The joint venture was formed to enter into an agreement to provide services to Consumers Gas and St. Catharines Hydro Electric Commission. In February 1997, the Board granted interim approval of the application without a public hearing. The Board's interim approval is subject to the condition that the details of this agreement be reviewed in the Consumers Gas rates hearing (EBRO 495). Union: Landowner Compensation — Sombra Pool CEBO 184] An application was filed in January 1995 on behalf of landowners with property overlaying the Sombra Pool designated gas storage area in Lambton County in southwestern Ontario. The application requested the OEB to determine the compensation to be paid by Union to the landowners for the volume of gas remaining underground when Union, the operator of the storage facility, first injected gas into the pool. In September 1995 the Board decided that it would proceed to determine the purchase price of the residual gas, as there was not an agreement among the parties as to the appropriate price to be paid. Board Staff facilitated negotiations between the applicants and Union in April and May 1996. Several issues were resolved and a settlement agreement was filed. The hearing into the compen- sation to be paid to the landowners took place in March 1997, with argument due in April. Other Regulatory Matters Diversification Consultation In a December 1995 letter, the Minister of Environment and Energy requested the Board to advise her on the appropriate regulatory controls and designated business areas for diversification by Ontario natural gas utilities, to replace the current requirement in the utilities' Undertakings for prior OEB approval. The Minister also request- ed the Board to seek input from stakeholders on these issues. The letter indicated that, to allow Union and Consumers Gas to participate in the bidding process for the York Region water project, the Government had exempted the utilities from having to obtain prior OEB approval regarding their involvement, as required by the Undertakings. The exemption was subject to certain conditions to limit risk by restricting the level of the investment and confirming the OEB's power to monitor these investments. Late in January 1 996, the Board received a second letter from the Minister, which concerned a request from IPL Energy Inc. and Consumers Gas to make further changes to their Undertakings. Specifically, the Companies sought release from the requirement to maintain a minimum 15 per cent public float in Consumers Gas' common shares. The Board decided to hold a public forum to provide an open discussion on these issues. This was held on February 29 and March 1 , 1996. Final written submissions were received by March 20 and distributed to all participants. The Board 29 submitted an Advisory Report to the Minister of Environment and Energy on Utility Diversification, released to the public in mid-May 1996. The OEB concluded that utility diversification into non-regulated businesses should not be prohibited, provided ratepayers are expected to benefit or, at a minimum, are protected against adverse consequences. The Board concluded that the risks to ratepayers could be significant and require appropriate structural and regulatory controls. The Report recommended the use of corporate structure to protect ratepayers by requiring corporate separation between the diversification activity and the utility. In the Board's view, the requirement for prior approval of diversification activities should be eliminated only for utility transactions conducted through non-subsidiary affiliates (that is, subsidiaries of the parent company rather than of the utility), subject to certain regulatory controls. The Board also recommended that diversification within a division or subsidiary of the utility itself or through a partnership or joint venture should be permitted, subject to prior approval. To augment structural controls, the Report called for a number of regulatory controls. In general, the Board believed that limiting diversification to specific designated business areas which rely on the utility's core business should limit ratepayer risks to a degree. The Board recommended that an investment cap should be placed on all financial support arrangements provided by the utilities. The overall cap should be set in the range of 30 to 35 per cent of the utility's equity, with a 10 per cent cap on individual projects. The Board noted that monitoring and auditing will be increasingly important to the performance of its mandate, and recommended that reporting and dis- closure guidelines be developed with respect to utilities' participation in ventures outside their regu- lated business. The Report also indicated that the added cost of reporting and monitoring should not be borne by the ratepayer, and recommended con- firmation of the Energy Returns Officer's authority to obtain information necessary to assist the Board in carrying out its responsibilities under the Undertakings. The Report recommended that the utilities and their parents undertake to protect the ratepayer or hold the ratepayer harmless as a result of any diversification activity. The Report further con- cluded that all the utilities should have a committee of independent directors to review affiliate transac- tions and therefore proposed that the Undertakings of Consumers Gas be amended to create such a committee. The Board also found that the elimination of the public float for Consumers Gas is acceptable since the remaining benefits are modest and can be foregone without adversely impacting ratepayers or the public interest. 10-Year Market Review The OEB determined that, after 10 years of dereg- ulation, a review of the current natural gas market structure in Ontario would be appropriate. The Board decided to hold two workshops on this issue, featuring presentations from the various players in the natural gas industry followed by open discussion, in December 1995 and January 1996. 30 \/ I To ensure a broad range of perspectives, the Board invited gas customers, agents, brokers, marketers, local distribution companies, producers, public interest groups and other Canadian regula- tors to participate. In late September 1 996, the Board released its 10- Year Market Review Report to industry partici- pants and stakeholders. The Report concluded that a more competitive natural gas commodity market has the potential to improve customer choice and market efficiency while reducing the need for regulation. The Board agreed with the majority of workshop participants that the legislative restrictions on end-use gas sales should be removed or modified to allow unregulated gas sales by non-LDC suppliers and Ontario producers anywhere in the province. The Board also concluded that it cannot consider removal of the regulated utility supply option with- out being satisfied that all customer groups will be adequately protected and that most customers want this change. The Board therefore was not prepared at that point to determine how fast and to what extent the transition to a fully competitive market should occur. The Board found that before the gas commodity market can be fully deregu- lated, small volume customers need to be better educated about the risks and benefits of different supply options. utilities and their marketing affiliates established to provide direct purchase options. The utilities them- selves should be limited to providing a standard gas supply service during the market transition. The Board decided to continue the Market Review through a stakeholder Working Group that would work to identify issues requiring further study and analysis and propose solutions or narrow the issues. The Working Group was formed in October 1996. A report summarizing its review of the Ontario natural gas market was expected by the spring of 1997. Pipeline Applications Consumers Gas: Rockland/Clarence/Cumberland CEBLO 255] In November 1995, the Board received an applica- tion requesting leave to construct a natural gas transmission pipeline to the Town of Rockland, the Township of Clarence and the Township of Cumberland east of Ottawa. A hearing was held in April 1996. Noting the evidence on economic feasibility, environmental conditions and the overall public interest, the Board in an Oral Decision found the application to be in the public interest and approved the project subject to certain conditions. Some participants expressed concern about the potential for marketing affiliates of the utilities to gain preferential access to monopoly services and customer information. The Board concluded that a Code of Conduct should be developed to describe the appropriate operating rules between the Consumers Gas: Orangeville Reinforcement (EBLO 2561 In March 1996, the Board received an application from Consumers Gas for leave to construct a natural gas transmission pipeline to reinforce the 31 / \v X distribution system serving the Town of Orangeville and the surrounding areas and to enable further expansion in the area. Consumers Gas also proposed to construct two pressure regulator stations and related facilities. A hearing was held in June 1996 and the Board issued an Oral Decision in early July approving the Orangeville reinforcement line and ancillary facilities subject to certain conditions. Consumers Gas: Coveny and Black Creek Pools CEBLO 2581 In October 1996, the Board received an application from Consumers Gas for construction of 13 km of transmission pipeline and gathering lines relating to the development of the Coveny and Black Creek storage pools in the Township of Sombra in Lambton County. A hearing was held in February 1997. The Board's decision on the pipeline proposal was pending at year end. Consumers Gas: Perth Reinforcement Project [EBLO 260) Consumers Gas filed a leave-to-construct applica- tion in February 1997 for the Perth Reinforcement Project consisting of approximately 16.8 km of transmission line from the existing Consumers Gas West Valley line near Smiths Falls to the Perth District Station. The objective is to reinforce the West Valley distribution system, which extends from Brockville in the south to Petawawa in the north and supplies major centres such as Smiths Falls, Perth, Carleton Place, Almonte, Pakenham, Arnprior, Renfrew and Pembroke. The proposed project will also allow Consumers Gas to supply the community of Port Elmsley and Steep Rock Resources Ltd. located west of the Town of Perth. The hearing was scheduled for June 1997. Consumers Gas: Creemore/New Lowell/Sunnidale Expansion Project [EBLO 261) In February 1 997 the Board received an application from Consumers Gas to construct a 23.4 km natural gas transmission pipeline in the Township of Clearview in the County of Simcoe, to expand service to the communities of Creemore, New Lowell and Sunnidale and other customers along the pipeline route. The case was pending at year end. Union: Bright to Owen Sound [EBLO 251) Union applied in December 1994 for leave to construct a section of 48-inch pipeline from its Bright Compressor Station in the Township of Blandford-Blenheim (southwest of Waterloo) to the existing Owen Sound Valve Site in the Township of North Dumfries. The project was subsequently delayed due to changes in transportation require- ments on Union's Dawn Trafalgar system. The hearing was held in February and March 1996, and the OEB's Decision with Reasons was issued in early May. The Board found that the need for the Bright to Owen Sound Line was dependent on the require- ments of a single company, Gaz Metropolitan, inc. (GMi). The Board gave the utility until June 1 , 1996 to file supplementary evidence in support of GMi's intention to utilize its contracted capacity with Union. Union filed supplemental evidence in support of its case in late May and the hearing reconvened in mid-June. In early July 1996, the Board issued an Addendum to Decision with Reasons. The Board noted that, as a condition of the Order, Union would be required to report to the Board an update of the peak day volume forecasts in each rate case for the next 30 years and satisfy other conditions, due to the uncertainty surrounding requirements in years subsequent to the extension of the GMi contracts. In addition, for the purposes of planning for future expansions on the Dawn Trafalgar system, Union was required to immediately establish a queuing policy similar to that used by TCPL and present it to the Board at the earliest opportunity. Union: Enniskillen/Dawn (EBLO 257] In July 1996, the Board received an application from Union for leave to construct various sections of natural gas pipeline in the Township of Enniskillen and in the Township of Dawn, in Lambton County. The hearing was held in October and the Board issued a Decision in November 1996, finding the application to be in the public interest and approving the project subject to certain conditions. Union: Port Elgin-Wiarton Project [EBLO 259] In December 1996 the Board issued Notices of Applications by Union to construct natural gas pipelines and ancillary facilities to serve the Towns of Port Elgin, Wiarton and Southampton, the Villages of Tara, Hepworth and Shallow Lake and the Townships of Arran, Saugeen, Amabel, Sydenham, Derby and Keppel. The hearing was scheduled to begin in early April 1997 in Port Elgin. 33 .1st of Proceedings The following is a tabular listing of all proceedings arising from applications and references received or initiated by the Board during the fiscal year ended March 31 , 1997. Also listed are proceed- ings arising in earlier years and dealt with by the Board in the 1996-97 fiscal year. CASE FILE APPLICANT CASE DESCRIPTION DECISION/ORDER TYPE NUMBER ISSUED Reference From the Minister of Environment and Energy Regarding Ontario Hydro HR 24 Ontario Hydro Review and Report on Ontario Hydro's Submission on 1997 Electricity Prices Aug. 30/96 Natural Gas Rates Applications EBRO 486-04 Union Gas Costs Apr. 1 2/96 & May 7/96 - Addendum EBRO 486-04A Union Gas Costs (Vary Order) Apr. 12/96/May 10/96 & July 10/96 EBRO 489-04 Centra Gas Supply Rates June 25/96 & July 10/96 EBRO 491 NRG Main Rates Fiscal 1996& 1997 Apr. 1 9/96 & May 8/96 - Addendum EBRO 491-01 NRG Amendments to Rate 3 Schedule In Progress EBRO 492 Consumers Gas Main Rates Fiscal 1997 Sept. 10/96 & Sept. 10 & 27/96 - Addendum EBRO 492-01 Consumers Gas Rehearing of CIS Issues Dec. 3/96 EBRO 492-02 Consumers Gas Gas Cost Motion Feb. 28/97 EBRO 493 Centra Main Rates Fiscal 1997 Mar. 25/97 EBRO 493-01 Centra Interim Order (Rates) Dec. 24/96 EBRO 493-02 Centra Quarterly Rate Review (Gas Costs) Feb. 17/97 EBRO 494 Union Main Rates Fiscal 1997 Mar. 25/97 EBRO 494-01 Union Interim Order (Rates) Dec. 24/96 EBRO 494-02 Union Gas Cost Motion Feb. 17/97 EBRO 495 Consumers Gas Main Rates Fiscal 1998 In Progress Pipeline Construction EBLO 251 EBLO 255 EBLO 256 EBLO 257 EBLO 258 Union Consumers Gas Consumers Gas Union Consumers Gas Bright to Owen Sound Town of Rockland Orangeville Reinforcement Project Bentpath/Rosedale Pool Black Creek and Coveny Pools May 3/96 & July 2/96 Apr. 18/96 July 4/96 Nov. 5/96 & Nov. 1 8/96 In Progress 34 \L CASE FILE APPLICANT CASE DESCRIPTION DECISION/ORDER TYPE NUMBER ISSUED EBLO 259 Union Gas Village of Wiarton, Town of Southampton, Township of Saugeen In Progress EBLO 260 Consumers Gas Perth Reinforcement Project In Progress EBLO 261 Consumers Gas Township of Clearview In Progress Franchi se Renewals EBA 724 Union Reg. Mun. of Hamilton-Wentworth Dec. 16/96 & Jan. 16/97 EBA 725 Union Town of Belle River May 14/96 EBA 726 Centra Township of Hillier July 4/96 EBA 729 Union Township of Sombra May 1 4/96 EBA 731 Centra Township of Atikokan Sept. 16/96 EBA 732 Union Village of Dutton May 14/96 EBA 738 Centra Town of Huntsville May 7/96 EBA 739 Centra Town of Powassan Apr. 11/96 EBA 740 Union Township of East Zorra-Tavistock July 11/96 EBA 741 Centra Township of Sydney May 10/96 EBA 742 Centra Township of Williamsburg May 10/96 EBA 743 Centra Town of Gananoque July 12/96 EBA 744 Centra Village of Iroquois July 12/96 EBA 745 Consumers Gas Town of Bradford West Gwillimbury July 19/96 EBA 746 Consumers Gas Town of Niagara-on-the-Lake July 19/96 EBA 747 Consumers Gas Township of Pakenham July 19/96 EBA 748 Centra Village of South River July 9/96 EBA 756 Centra Township of Hope Oct. 2/96 EBA 757 Consumers Gas City of Vaughan Nov. 8/96 EBA 758 Consumers Gas City of Welland Nov. 27/96 EBA 758-01 Consumers Gas City of Welland Sep. 17/96 EBA 759 Consumers Gas Town of Penetanguishene Feb. 5/97 EBA 760 Consumers Gas Town of Grimsby Nov. 20/96 EBA 761 Consumers Gas Village of Cobden Nov. 20/96 EBA 761-01 Consumers Gas Village of Cobden Sept. 26/96 EBA 762 Consumers Gas Town of Renfrew Nov. 20/96 EBA 762-01 Consumers Gas Town of Renfrew Sept. 26/96 EBA 763 Consumers Gas City of Pembroke Dec. 20/96 EBA 763-01 Consumers Gas City of Pembroke Oct. 2/96 EBA 764 Consumers Gas City of Brockville In Progress EBA 764-01 Consumers Gas City of Brockville Nov. 27/96 EBA 765 Consumers Gas Town of Wasaga Beach Jan. 27/97 EBA 766 Consumers Gas Township of Essa Jan. 23/97 35 /WW CASE FILE APPLICANT CASE DESCRIPTION DECISION/ORDER TYPE NUMBER ISSUED EBA 767 Centra City of Orillia In Progress EBA 767-01 Centra City of Orillia Dec. 20/96 EBA 768 Centra Town of Gravenhurst In Progress EBA 768-01 Centra Town of Gravenhurst Dec. 20/96 EBA 769 Centra Township of Severn In Progress EBA 769-01 Centra Township of Severn Dec. 20/96 EBA 770 Centra Township of Oro-Medonte In Progress EBA 770-01 Centra Township of Oro-Medonte Dec. 20/96 EBA 771 Centra Village of Sundridge Jan. 17/97 EBA 782 Consumers Gas Township of King In Progress EBA 783 Centra Town of Bracebridge In Progress EBA 783-01 Centra Town of Bracebridge Dec. 20/96 EBA 784 Consumers Gas Town of Collingwood In Progress EBA 786 Union Township of Blandford-Blenheim In Progress EBA 787 Consumers Gas Town of Hawkesbury In Progress EBA 789 Centra Town of Vankleek Hill In Progress EBA 790 Centra Township of Lochiel In Progress EBA 791 Centra Town of Longueuil In Progress EBA 792 Centra Town of McNab In Progress EBA 793 Centra Township of Ross In Progress Certificate and New Franchise Applications EBC 240/EBA 727 Centra Town of Cache Bay July 4/96 EBC 241 /EBA 728 Centra Township of Harris Sept. 30/96 EBC 242/EBA 730 NRG Township of Yarmouth June 3/96 EBC 243/EBA 733 Centra Village of Tweed Aug. 27/96 EBC 244/EBA 734 Centra Village of Marmora Aug. 8/96 EBC 245/EBA 735 Centra Village of Delora Aug. 8/96 EBC 246/EBA 737 Consumers Gas Township of Adjala-Tosorontio July 4/96 EBC 247/EBA 749 Centra Township of Hungerford Aug. 27/96 EBC 248/EBA 750 Northern Cross Pipelines Township of Ashfield In Progress EBC 250/EBA751 Northern Cross Pipelines Township of West Wawanosh In Progress EBC 251 /EBA 752 Centra Town of Marmora and Lake Aug. 8/96 EBC 252/EBA 753 Union Township of Yarmouth Sept. 27/96 EBC 253/EBA 754 Centra Village of Finch In Progress EBC 254/EBA 755 Centra Township of Finch In Progress EBC 255/EBA 736 Union Township of Bayham Dec. 16/96 & Jan. 17/97 EBC 256/EBA 772 Union Town of Port Elgin In Progress EBC 257/EBA 773 Union Town of Southampton In Progress EBC 258/EBA 774 Union Town of Wiarton In Progress CASE FILE APPLICANT CASE DESCRIPTION DECISION/ORDER TYPE NUMBER ISSUED EBC 259/EBA 775 Union Village of Tara In Progress EBC 260/EBA 776 Union Village of Shallow Lake In Progress EBC 261/EBA777 Union Village of Hepworth In Progress EBC 262/EBA 778 Union Township of Arran In Progress EBC 263/EBA 779 Union Township of Saugeen In Progress EBC 264/EBA 780 Union Township of Amabel In Progress EBC 265/EBA 781 Union Township of Keppel In Progress EBC 266/EBA785 Consumers Gas Township of Clearview In Progress Certificates of Public Convenience and EBC 1 39-A Centra Necessity Hamlet of Edgar Nov. 12/96 Pipeline Exemptions PL 93 Consumers Gas Whitby Cogeneration Reinforcement Project Apr. 2/96 PL 95 Union TransAlta Cogeneration Facility Apr. 23/96 PL 96 Consumers Gas Highway 410/Derry Road Apr. 1 8/96 & Sept.4/96 PL 97 Consumers Gas NRC Cogeneration Project Sept. 23/96 Uniform Accounting Orders UA 100 Consumers Gas Revenue Canada Changes in Assessing Practices May 24/96 UA 105 Union TransCanada Gas Services Apr. 15/96 UA 106 Union High Temp Plastic Vents Feb. 13/97 UA 106-01 Union High Temp Plastic Vents (supplemental) In Progress UA 107 Consumers Gas PGVA Difference Jan. 21/97 UA 108 Consumers Gas High Temperature Plastic Venting Systems Feb. 14/97 Approvals Under Current Undertakings EBO 177-09 Union EBO EBO EBO EBO EBO EBO 177-10 177-11 177-12 179-09 179-10 179-11 EBRLG 34-18 Union Union Union Consumers Gas Consumers Gas Consumers Gas Centra Provision for Charges for Westcoast Corporate Services to Union Investment in Ontario OneCall Acquisition of CIS Services from Westcoast Mar. 25/97 Nov. 14/96 In Progress In Progress Transfer of Westcoast Energy Inc.'s Part VI Tax Liability for 1997 Tax Year Investment in Ontario OneCall In Progress Affiliate Transaction with IPL Nov. 13/96 Technology Affiliate Transaction with Feb. 26/97 Consumers Gas Energy Inc. relating to the Integrated Utility Services Project Transfer Westcoast 's Part V1 .1 In Progress Tax Liability for 1995 37 ///WW CASE FILE APPLICANT CASE DESCRIPTION DECISION/ORDER TYPE NUMBER ISSUED EBRLG 34-19 Centra Provision for Charges for Westcoast Services to Centra Gas Nov. 14/96 EBRLG 34-20 Centra Storage Services from St. Clair Pipelines Apr. 30/96 EBRLG 34-21 Centra Investment in Ontario OneCall In Progress Other Matters EBA 717 Metalore Resources Limited Limited Franchise Approval Norfolk County In Progress - EBO 184 Landowners Sombra Pool Compensation In Progress EBO 188 Ontario Energy Board System Expansion Aug. 15/96 - Interim EBO 195 Union/Centra Application for Leave to Amalgamate Mar. 7/97 EBO 196 Consumers Gas Black Creek and Coveny Pools In Progress EBO 197 Consumers Gas Black Creek and Coveny Pools In Progress EBO 198 Consumers Gas Black Creek and Coveny Pools In Progress EBO 199 Union Off Peak Storage - St. Clair Pipelines In Progress EBRM 106/PL94 Consumers Gas Drilling Permits - Kimball - Collinville & Corunna Pools and Tecumseh Gas Storage Apr. 1 8/96 & Apr. 22/96 EBRM 107 Union Drilling Permits - Bentpath/ Rosedale Pool In Progress EBRM 108 Consumers Gas Black Creek and Coveny Pools In Progress — — Ontario Energy Board Market Review In Progress — — Consumers/Union/ Centra Diversification Consultation May 1 5/96 y \ List of Participants The following individuals, companies and organizations intervened in proceedings heard by the Board during the 1996-97 fiscal year. A.E. Sharp Limited Alliance Gas Management Amoco Canada Petroleum Inc. Association of Major Power Consumers in Ontario Canadian Association of Energy Service Companies Canadian Independent Gas Marketing Association Canadian Industry Program for Energy Conservation CanStates Gas Marketing Centra Gas Ontario Inc. Cibola Canada Energy Marketing Company Coalition of Eastern Natural Gas Marketers (CEN- GAS) Comsatec Inc. Consumers' Association of Canada City of Kitchener Direct Energy Marketing Limited Ecological Services For Planning Inc. ECNG Inc. Electric Utilities Group Energy Probe Enron Capital and Trade Resources Canada Corporation Gazifere Inc. Gaz Metropolitan, inc. Green Communities Association Green Energy Coalition Hydro Mississauga Independent Power Producers' Society of Ontario Industrial Gas Users Association Integrated Energy Development Corporation KPMG Management Consulting Lake Superior Power Limited Partnership London GasSave London Hydro Metalore Resources Ltd. Municipal Electric Association Municipal Gas Corporation Mutual Gas Association Natural Resource Gas Limited Nishnawbe-Aski Nation Northern Ontario Municipal Association Northwatch Novagas Clearinghouse Ltd. Novergaz Inc. Ontario Association of Physical Plant Administrators Ontario Association of School Business Officials Ontario Coalition Against Poverty Ontario Federation of Agriculture Ontario Hot Mix Producers Association Ontario Hydro Ontario Interlink Industrial Park Ontario Native Alliance Ontario Natural Gas Association Ontario Wide Natural Gas Cash Back Company Inc. Orillia Water, Light, and Power Commission Ottawa-Carleton Gas Purchase Consortium Ottawa Hydro PanEnergy Marketing Pembina Resources Petro Canada 39 / / \ I WW Pollution Probe Power Workers' Union Public Interest Advocacy Centre Shell Canada StampGas Inc Stampeder Energy St. Lawrence Gas Company Inc. Sunalta Energy Marketing Inc. Suncor Inc. Terra International The British Columbia Ministry of Energy, Mines and Petroleum Resources The Bruce Communities The Consumers' Gas Company The Corporation of the Town of Tecumseh The Heating, Ventilation, Air Conditioning Contractors Coalition Inc. The London Board of Education Gas Purchase Consortium The Society of Ontario Hydro Professional and Administrative Employees Woodland Hills Community Inc. The Windsor Utilities Commission Toronto District Heating Corporation Toronto Electric Commissioners TransAlta Energy Corporation TransCanada Gas Services Ltd. TransCanada PipeLines Limited Union Gas Limited University Group of Southwestern Ontario Westcoast Gas Services Inc. \ Glossary of Terms Affiliate See "Non-Subsidiary Affiliate" Bulk Power Rates The wholesale rates that Ontario Hydro charges municipal utilities and direct industrial customers. LDC Local gas distribution company. Non-Subsidiary Affiliate A subsidiary of the parent company of a utility, but not of the utility itself. Buy/SellAn arrangement under which end-users or their agents buy gas directly from producers, sell the gas to the local utility for transportation to a site served by the utility's distribution network, and then buy the gas back upon delivery. Buy/Sell Reference Price The price, approved by the OEB, which a local distribution company pays for a direct-purchase customer's gas supplies. The reference price is based on the utility's weighted average cost of gas. Upon delivery, the utility resells the gas to the customer at the regular retail rate, which includes transportation costs. Buy/sell customers benefit when they or their agents are able to purchase gas supplies from producers at a lower cost than the utility's buy/sell reference price. Common Equity Ratio The ratio of the common equity to the total capital of a company. PGVA The Purchased Gas Variance Account maintained by a utility to track the difference between the forecast and actual cost of gas. Rate Base The amount that a utility has invested in fixed assets that are used or are useful in providing service, net of accumulated depreciation, plus an allowance for working capital and any other items which the Board may determine. Rate base may also be net of accumulated deferred income taxes. Rate of Return on Common Equity Utility income applicable to the common equity component of a utility's total capital, that a utility earns or is authorized to earn, expressed as a percentage of the amount of common equity approved for inclusion in the utility's capital structure. 41 / // WW Rate of Return on Rate Base Utility income, after taxes, that a utility earns or is authorized to earn, expressed as a percentage of the rate base. This return is not guaranteed to the utility. Rather, this is the return that the company has a reasonable opportunity to earn given forecast conditions. Revenue Deficiency The shortfall between the revenues required to achieve the allowed annual level of earnings previously established by the Board and the revenues that will be produced with currently approved rates. Revenue Requirement The amount of revenue that a utility must recover through rates to cover its costs of providing service. The costs include such items as: operating and maintenance expenses, depreciation, taxes and the return on capital employed. WACOG A utility's weighted average cost of all gas purchased in a specified time period. Revenue Excess [or Revenue Surplus] The difference, if positive, between the annual level of earnings that will be produced with currently approved rates, and the allowed level of earnings established by the Board. \ The Ontario Energy Board is located at: 2300 Yonge Street, Suite 2601 Toronto, Ontario M4P 1E4 Telephone (416) 481-1967 Copies of the Annual Report in English and in French and other Board publications may be purchased from Publications Ontario, 880 Bay Street, Toronto. Telephone (416) 326-5320. Out-of-town customers please contact Publications Ontario, Mail Orders, 50 Grosvenor Street, Toronto, Ontario M7A 1N8. Toll-free long distance: 1-800-668-9938. Photograph by V. Pietropaulo. Designed by Staigh & Green Communications Inc. » * Printed in Canada on Beckett Expression containing 20% recycled fibre with 20% post-consumer.